In the UBS "2024 Global Family Office Report" published in May, it was revealed that family offices in the Asia-Pacific region plan to increase their allocations to private equity and private debt over the next five years. This strategy aims to maintain portfolio diversity, mitigate risk, and achieve better investment returns. Ultra-high-net-worth individuals are increasingly receptive to private markets.
Amid the convergence of finance and technology, wealth management is undergoing significant transformation, with investment preferences of high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals shifting. With rising expectations of interest rate cuts, many HNW clients have positioned themselves in the bond market, favoring investment-grade bonds with lower default risk to reduce investment risk and secure future interest income. Additionally, some clients opt for fixed-income structured products, such as bond-linked notes, to achieve returns of 6% to 7%. However, some clients, concerned about U.S. inflation and a potential slowdown in interest rate cuts, are investing in gold to hedge geopolitical risks and combat inflation. In response, the bank has established vault services in Hong Kong for storing physical gold.
Emphasis on Diversified Investment Among High-Net-Worth Individuals
In stock investments, Wenlin Qian noted that in recent years, HNW clients have mainly focused on the U.S. market, with lower allocations to mainland China and Hong Kong markets. With China's economic stimulus measures, clients are increasingly optimistic about these markets and are gradually increasing their holdings, not necessarily through direct stock purchases but via structured products. These products allow clients to profit from expected stock rises while buying equities at attractive prices even if stock prices fall. Typically, stable stocks are chosen, and caution is exercised when drafting structured product contracts.
Wenlin Qian believes the biggest shift in HNW investment is the increased acceptance of private markets, particularly among UHNW individuals. According to the UBS report, family offices in the Asia-Pacific region plan to increase their allocations to private equity and private debt over the next five years to maintain diversification, spread risk, and enhance returns. The volatility of public markets has heightened interest in private markets, which have lower correlations. Investing in private markets through private banks has become a trend among HNW individuals, with these banks collaborating with other financial institutions to offer clients high-potential private assets.
Diversified Wealth Management Services
Whether increasing allocations to gold or private assets, it reflects the emphasis HNW individuals place on diversified investments. The bank's Discretionary Portfolio Management (DPM) services are popular, with one in five clients using DPM portfolios. These portfolios, managed by investment experts, achieved a 12% return from early this year to September, including bonds, stocks, and alternative investments.
Ninety percent of the bank’s Hong Kong clients are locals, with the rest from Southeast Asia. Southeast Asian clients prefer investing in DPM portfolios managed by professionals, while local clients favor self-directed investments, allocating some funds to short-term tactical investments alongside stable DPM portfolios to reduce risk.
Rising Demand for Digital Wealth Management
The new generation of HNW individuals demands more self-directed investments, driving the need for electronic banking and digital wealth management. With the shift in wealth and technological advancements, there is an increase in HNW individuals under 50. The bank has optimized its digital wealth management system for this demographic, offering real-time investment information. In the first three quarters of this year, active digital platform users grew by over 20%, and online transactions increased by 65%.
In response to the economic integration of the Greater Bay Area, the bank is collaborating with regional chambers of commerce to meet entrepreneurs' financial needs and expand wealth management services in the area.
Source: Adeline Chien, November 13, 2024, Ming Pao Private Banking Salon (Observer with over 30 years of private banking experience)
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